China's moves to tighten control on the mining and export of a class of metal ores called rare earth are aimed at attracting high-tech manufacturing to Inner Mongolia, and not at dominating the market, a senior Chinese official said.

...China also is taking steps to consolidate its rare-earth industry. Mr. Zhao, who said he runs the region's industrial policy, said Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. would lead that consolidation. The move is aimed at creating a group of rare-earth miners and processors in the region's western parts. Inner Mongolia Baotou Steel Rare Earth's stock rose 7.6% in Shanghai trading Wednesday.

"Most of the consolidation is complete," Mr. Zhao said. "We want to build Baotou into an international rare earth production base."

Rare-earth resources haven't been well developed in major markets like the U.S., where rare-earth concentrates are significantly mined in only one deposit, in Mountain Pass, California.

Japanese firms including Sumitomo Corp. and Toyota Motor Corp. have already begun to develop alternative sources of rare earth in Kazakhstan and Vietnam....

China, holder of the world’s largest rare-earths deposits, may build a strategic reserve in Inner Mongolia, strengthening its control over materials used in technology ranging from iPods to guided missiles.

Inner Mongolia, which contains 75 percent of China’s deposits, is in talks with the central government to build stockpiles to support prices, Zhao Shuanglian, deputy chief of the province, said at a press conference today in Beijing.

China, which imports most of its iron ore, oil and copper, is tightening control over supplies of rare earths, a range of more than 15 elements such as scandium and lanthanum. Shares in Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., the main producer in the province, surged 7.6 percent in Shanghai trading today after Zhao said the company will take over smaller rivals to consolidate the industry.

“The plan of building a national reserve stockpile is part of a government-level strategy to protect the resources of rare earths and prevent it from being sold cheaply,” Liu Minda, analyst at Huatai Securities Co., said by phone from Nanjing....

...Baotou Steel Rare-Earth rose 7.6 percent to close at 22.30 yuan in Shanghai after Zhao announced plans for mergers of rare- earth companies. The stock has tripled this year, compared with a 48 percent gain of the benchmark Shanghai Composite Index.

“The purpose of the consolidation is to use Baotou as the head of a conglomerate that can create a certain economy of scale in the industry,” Zhao said...

...Foreign suspicions of Beijing’s plans for world domination of rare earths have been fed by comments from no less than Deng Xiaoping, the former Chinese leader who said in 1992 that while the Mideast had oil, China had rare earths.

But foreign and Chinese industry sources doubt Beijing’s dominant goal is to create an Opec-like price cartel. After flooding the world market with cheap rare earths for more than a decade, Beijing now wants to ensure that it has the materials it needs to feed its own growing ambitions to build advanced and green technology industries such as electric vehicles.

Inner Mongolia, which contains 75 per cent of China’s rare earth deposits, said earlier this week that it wanted to build a strategic reserve of rare earths to stabilise prices. It also wants to consolidate the local industry. The aim, according to Inner Mongolia officials, is to conserve reserves and attract more users to set up manufacturing plants in Inner Mongolia.

Rare earths have been sold too cheaply, and some traders have sold supplies illegally overseas, threatening domestic supplies and causing over-exploitation and environmental problems, according to an official of the Chinese Society of Rare Earths.

Just cutting production, without a strategic reserve to boost price, will be hard for central government, because that will hurt profits of some state-owned firms and local governments, analysts say....